Budget 2024: The Centre may announce a fiscal deficit target of 5.3 per cent of the gross domestic product (GDP) for FY25 in the upcoming Interim Budget, to be tabled on February 1, 2024, Goldman Sachs said. The Centre will meet its fiscal deficit target of 5.9 per cent of the GDP as the receipts are likely to be higher than the estimates by 0.2 per cent of the GDP, Goldman Sachs said in its report, Asia in Focus.
In the fiscal year FY24 (April 2023 to March 2024), the Centre has been able to achieve robust tax collection, primarily through direct taxes, according to Goldman Sachs. This has provided the government with some fiscal room to increase spending while still meeting the fiscal deficit target of 5.9 per cent of GDP.
The government's capital expenditure (capex) has played a crucial role in driving overall investment growth in recent years. However, it is expected that the focus on capex will continue at a slower pace compared to previous years, as the central government aims for medium-term fiscal consolidation.
Goldman Sachs expects the central government to announce a fiscal deficit target in the range of 5.2 - 5.4% of GDP (with 5.3% of GDP as their base case) in FY25 given their medium term fiscal consolidation target of reaching 4.5% of GDP by FY26.
Goldman Sachs further said that the receipts upside of 0.2% of GDP will help the government meet the fiscal deficit target. In fact, if the spendings remain muted in the current quarter, they may end up consolidating to 5.8% of GDP.
It added that the upside in receipts of 0.2% of GDP to be driven by higher income and corporate taxes, and higher non-tax revenues on the back of higher-than-expected dividends from the RBI and PSUs.
On the expenditure side, they expect an upside of around 0.4% of GDP driven by higher expenditure on major subsidies (0.2% of GDP) and higher expenditure on the rural employment program (0.2% of GDP).
Summing up, Goldman Sachs expects the government to meet its fiscal deficit target of 5.9% of GDP despite nominal GDP growth projections of 8.9% year-on-year for FY24 as per the first advance estimates below the growth assumption of 10.5% in the budget document.
On the income side, Goldman Sachs said that the income taxes and corporate tax are expected to grow by 15 per cent in FY25, under indirect taxes. Goods and services tax (GST) is expected to record a jump of 11 per cent.
It also added that the Reserve Bank of India (RBI) is expected to emerge as the net seller of government bonds in FY25 given the demand from foreign institutional investors and domestic investors.
Goldman Sach also said that the RBI may go for two repo rate cuts in FY25. Both of these may be of 25 basis points each, with one between July and September, and another between October and December, the agency said.
In FY25, according to Goldman Sachs, the Centre will keep a focus on increasing the capital expenditure, but it will most likely be at a slower pace than earlier.
"We expect the focus on capex to continue, but at a slower pace (we expect 10 per cent year-on-year growth in capex) than what has been seen in the last few years (over 30 per cent CAGR between FY21 to FY24 BE)," it said.
On Thursday, Reuters reported that the Centre is planning to cut its budget deficit by at least 50 basis points in 2024/25 from 2024's target of 5.9 per cent of gross domestic product (GDP), while also looking to raise capital spending by as much as 20 per cent.
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Also read: Budget 2024: Centre may reduce budget gap by at least 50 bps, up capex by 20% in FY25, says report